# EUR-Lex - 52013DC0352 - EN

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# 52013DC0352

**Recommendation for a COUNCIL RECOMMENDATION on Bulgaria’s 2013 national reform programme and delivering a Council opinion on Bulgaria’s convergence programme for 2012-2016 /* COM/2013/0352 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Bulgaria’s 2013 national reform
programme
and delivering a Council opinion on Bulgaria’s convergence programme for
2012-2016

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning
of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular Article 9(2)
thereof,

Having regard to Regulation (EU) No
1176/2011 of the European Parliament and of the Council of 16 November 2011 on
the prevention and correction of macroeconomic imbalances[2], and in particular Article 6(1)
thereof,

Having regard to the recommendation of the
European Commission[3],

Having regard to the resolutions of the
European Parliament[4],

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

After consulting the Economic and Financial
Committee,

Whereas:

(1)       On 26 March 2010, the
European Council agreed to the Commission’s proposal to launch a new strategy
for growth and jobs, Europe 2020, based on enhanced coordination of economic
policies, which will focus on the key areas where action is needed to boost Europe’s potential for sustainable growth and competitiveness.

(2)       On 13 July 2010, on the
basis of the Commission's proposals, the Council adopted a recommendation on
the broad guidelines for the economic policies of the Member States and the
Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines
for the employment policies of the Member States[5],
which together form the ‘integrated guidelines’. Member States were invited to
take the integrated guidelines into account in their national economic and
employment policies.

(3)       On 29 June 2012, the Heads
of State or Government decided on a Compact for Growth and Jobs, providing a
coherent framework for action at national, EU and euro area levels using all
possible levers, instruments and policies. They decided on action to be taken
at the level of the Member States, in particular expressing full commitment to
achieving the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.

(4)       On 6 July 2012, the
Council adopted a recommendation on Bulgaria’s national reform programme for
2012 and delivered its opinion on Bulgaria’s updated convergence programme for
2011-2015.

(5)       On 28 November 2012, the
Commission adopted the Annual Growth Survey[6],
marking the start of the 2013 European Semester for economic policy
coordination. Also on 28 November 2012, the Commission, on the basis of
Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report[7], in which it identified Bulgaria as one of the Member States for which an in-depth review would be carried out.

(6)       On 14 March 2013, the
European Council endorsed the priorities for ensuring financial stability,
fiscal consolidation and action to foster growth. It underscored the need to
pursue differentiated, growth-friendly fiscal consolidation, to restore normal
lending conditions to the economy, to promote growth and competitiveness, to
tackle unemployment and the social consequences of the crisis, and to modernise
public administration.

(7)       On 10 April 2013, the
Commission published the results of its in-depth review[8] for Bulgaria, under Article 5
of Regulation (EU) No 1176/2011. The Commission’s analysis leads it to conclude
that Bulgaria is experiencing macroeconomic imbalances, which deserve
monitoring and policy action. In particular, the impact of deleveraging in the
corporate sector as well as the continuous adjustment of external positions,
competitiveness and labour markets deserve continued attention.

(8)       On 19 April 2013, Bulgaria submitted its 2013 convergence programme covering the period 2012-2016 and its
2013 national reform programme. In order to take account of their
interlinkages, the two programmes have been assessed at the same time.

(9)       Based on the assessment of
the 2013 convergence Programme pursuant to Regulation (EC) No 1466/97, the
Council is of the opinion that public finances in Bulgaria have overall been sound.
The medium-term objective (MTO) was reached in 2012. The macroeconomic scenario
underpinning the budgetary projections in the convergence Programme is plausible
for the 2013-14 period, when annual growth is expected to reach 1.0% in 2013
and 1.8% in 2014. The Commission 2013 spring forecast foresees a GDP growth of
0.9% in 2013 and of 1.7% in 2014. The objective of the budgetary strategy
outlined in the programme is to keep the structural budget balance close to the
MTO throughout the programme period. The programme confirms the previous MTO of
-0.5% of GDP which is more ambitious than required by the Stability and Growth
Pact. Based on the (recalculated) structural budget balance, which is estimated
to weaken slightly form a deficit of 0.4% of GDP in 2012 to between 0.7-0.8% of
GDP over 2013-2016. Bulgaria falls marginally below its MTO over the
Convergence Programme period. In 2013-15, the growth rate of government
expenditure, taking into account discretionary revenue measures, would respect
the expenditure benchmark of the Stability and Growth Pact, yet breach it in
2016. The debt ratio is below 60% of GDP and, according to the Convergence
Programme, it is expected to peak at 20.4% of GDP in 2014 and then to decrease
over the Programme period. Similarly, the Commission 2013 spring forecast
foresees the debt ratio to amount to 20.3% of GDP in 2014.

(10)     Bulgaria has substantially
strengthened its fiscal framework in recent years which has contributed to
maintaining fiscal discipline and increasing fiscal policy credibility. The new
public finance law which will enter into force in 2014 retains the existing
numerical fiscal rules, further strengthens requirements at the municipal level
and reforms the three-year medium-term budgetary framework. It is important
that the authorities maintain the reform momentum and prepare the ground for
implementation of the new law, in particular by establishing the envisaged
independent fiscal and giving it a clear mandate, functional autonomy and
adequate resources. There is considerable scope for improvement in tax
compliance and progress in this area would allow Bulgaria to support higher
growth-enhancing expenditure. While Bulgaria has taken some recognisable steps
to reduce compliance costs and to improve revenue collection, the tax system
remains characterised by significant tax evasion and low administrative
efficiency. Administrative costs for tax collection are high, as are the costs
for businesses associated with paying taxes. Despite the measures taken to
improve tax compliance, the share of the shadow economy is still estimated to
be high and reducing it requires sustained long-term efforts.

(11)     Reducing early labour
market exit is a key challenge for improving the adequacy of the pension
system, as well as for the supply of labour. The employment rate of older
workers, in particular of older women, is below the EU average and results in
inadequate pension entitlements for a large share of the beneficiaries. Whilst
important reforms are already being undertaken in this area, the remaining
special schemes for certain professions are among the factors contributing to
lowering the effective retirement age. Continuing the progress achieved in
raising the pension age, Bulgaria should also prepare and set a date for the
introduction of the same statutory retirement age for men and women with full
career contributions. A review of the criteria and controls for the allocation
of invalidity pensions (e.g. introduction of ability to work as criterion)
would be an important contribution to effectively limiting abuse.

(12)     Bulgaria suffers from
below-average and declining employment as well as high unemployment disparities
across regions and population subgroups. The crisis has had a particularly
strong impact on low-skilled workers and has significantly raised youth
unemployment. Long-term unemployment has risen faster than in the rest of the
EU. A reformed Employment Agency would have the potential to play a prominent
role in matching supply and demand in Bulgaria’s labour market through more
effective counselling, targeted employment measures and better forecasting of
future skills requirements. An early evaluation of the on-going Youth
Employment Initiative could help to ensure that resources are directed to those
actions that generate the highest job-creation returns. It remains a challenge
to ensure that the system of minimum social security contributions attains the
objective of reducing the shadow economy, while not pricing out low-skilled
workers. Bulgarian citizens experience the highest risk of poverty or social
exclusion in the EU. The implementation of the national Strategy for Combating
Poverty and Social Exclusion should be treated as priority. There is a need to
improve the accessibility and effectiveness of social transfers and to enhance
the efficiency and access to social services, in particular for children and
older people. The National Roma Integration Strategy should be accompanied by
an action plan indicating specific measures, sufficient funding and the
establishment of a monitoring mechanism for measuring the impact of actions.

(13)     Bulgaria is facing the
challenge of improving the overall quality and efficiency of its education
system. The final adoption of the School Education Act before the end of 2013
would provide a framework for progress on the necessary reforms, including
modernising curricula and implementing improvements to teachers’ training and
incentives. In higher education, reforms have made very limited progress. The
existence of an important disparity between higher education outcomes and
labour market demand worsens structural unemployment and hampers the
development of high-value, innovative sectors. The poor performance of higher
education is linked to a lack of incentives at institutional level as well as
to the standard of individual researchers and teachers. Improving the quality
and coverage of the health-care system is a long-standing challenge for Bulgaria. Increased transparency in health-care financing would contribute to growth and
competitiveness in the sector. The share of healthcare spending on ambulatory
care is low, limiting access to cost-effective healthcare services. The high
rate of out-of-pocket payments effectively excludes certain segments of the
population from health-care services. Bulgaria faces important challenges in
the rationalisation and management of the hospital sector.

(14)     The competitiveness of
domestic companies and the attraction of foreign investments would benefit
greatly from improvements to Bulgaria’s business environment, including
increased efficiency of public services. A speedier, systematic introduction of
e-government offers considerable potential and could, inter alia, reduce
compliance costs and the administrative burden for business. Moreover, full
implementation and enforcement of corporate legislation, including
late-payments and insolvency procedures, would considerably improve the
framework conditions, not least for SMEs. Inadequate access to finance remains
a brake on SME development. A well-functioning, independent judicial system is
a prerequisite for sustainable economic development. Bulgaria has over recent
years made progress in reforming the judicial system, in particular in
modernising the legal and institutional framework. At the same time, there
remains considerable potential for making full use of this framework, securing
the sustainability of results and enhancing the ownership of reforms at all
levels. Enhanced efforts to fight corruption would likewise constitute a
positive contribution to improving the business environment.

(15)     Effective implementation of
EU funds remains critical to necessary public investment. The 2011 reform of
public-procurement legislation was a significant step towards improving the
monitoring, prevention and punishment of irregularities. While new rules
covering inter alia EU co-funded projects have entered into force, giving
broader powers to the Public Procurement Agency would further enhance the
effectiveness of ex ante control.

(16)     The capacity and
independence of regulators in key economic sectors are important framework
conditions for competitiveness. Bulgaria’s transport infrastructure has
experienced some improvements over recent years, whilst considerable potential
remains for making service provision and maintenance sufficiently efficient. Bulgaria has yet to fully implement its obligations under the Internal Energy Market.
Considerable challenges remain at both wholesale and retail levels. Persistent
market barriers, guaranteed profit arrangements and regulated prices, together
with the absence of a wholesale market for electricity and natural gas,
constitute areas of particular concern. Given its considerable dependence on a
single energy route, Bulgaria is highly exposed to the risk of supply shocks.
The implementation of electricity and gas interconnector projects should be
speeded up to improve diversification and security of supply. Low energy
efficiency remains a significant economic burden on both business and private
consumers. In particular, the energy efficiency of buildings, both public and
private, holds considerable potential.

(17)     In the context of the
European Semester, the Commission has carried out a comprehensive analysis of Bulgaria’s economic policy. It has assessed the convergence programme and national reform
programme, and presented an in-depth review. It has taken into account not only
their relevance for sustainable fiscal and socio-economic policy in Bulgaria
but also their compliance with EU rules and guidance, given the need to
reinforce the overall economic governance of the European Union by providing
EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1)
to (7) below.

(18)     In the light of this
assessment, the Council has examined Bulgaria’s convergence programme, and its
opinion[9]
is reflected in particular in recommendation (1) below.

(19)     In the light of the
Commission’s in-depth review and this assessment, the Council has examined the
national reform programme and the convergence programme. Its recommendations
under Article 6 of Regulation (EU) No 1176/2011 are reflected in
recommendations (3), (4) and (5) below,

HEREBY RECOMMENDS that Bulgaria should take action within the period 2013-2014 to:

1.           Preserve a sound fiscal
position by ensuring compliance with the medium-term objective and pursue a
growth-friendly fiscal policy as envisaged in the convergence programme. Implement
a comprehensive tax strategy to strengthen all aspects of the tax law and
collection procedures with a view to increase revenue, notably by improving tax
collection, tackling the shadow economy and reducing compliance costs. Establish
an independent institution to monitor fiscal policy and provide analysis and
advice.

2.           Phase out early retirement
options, introduce the same statutory retirement age for men and women and
implement active labour market policies that enable older workers to stay
longer in the labour market. Tighten the eligibility criteria and controls for
the allocation of invalidity pensions to effectively limit abuse.

3.           Accelerate the national
Youth Employment Initiative, for example through a Youth Guarantee. Reform the
Employment Agency with a view to providing effective counselling to jobseekers
and develop capacity for forecasting and matching skill needs. Enhance active
labour-market policies, in particular concerning national employment schemes.
Undertake a review of the minimum thresholds for social security contributions
to ensure that the system does not price the low-skilled out of the labour
market. Ensure concrete delivery of the National Strategies on Poverty and Roma
integration. Improve the accessibility and effectiveness of social transfers
and services, in particular for children and older people.

4.           Adopt the School Education
Act and pursue the reform of higher education, in particular through better
aligning outcomes to labour-market needs and strengthening cooperation between
education, research and business. Improve access to inclusive education for
disadvantaged children, in particular Roma. Ensure effective access to
healthcare and improve the pricing of healthcare services by linking hospitals’
financing to outcomes and developing out-patient care.

5.           Take further steps to
improve the business environment, by cutting red tape, implementing an e-government
strategy and implementing the legislation on late payments. Improve the quality
and independence of the judicial system and fight corruption more effectively.
Improve the access to finance for SMEs and start-ups.

6.           Accelerate the absorption
of EU funds. Ensure sound implementation of public-procurement legislation by
extending ex-ante control by the Public Procurement Agency to prevent
irregularities.

7.           Strengthen the
independence of national regulatory authorities and the administrative capacity
in particular in the energy and transport sectors, as well as for waste and
water management. Remove market barriers, quotas, territorial restrictions and
regulated prices and complete the market design by setting up a transparent
wholesale market for electricity and natural gas. Accelerate electricity and
gas interconnector projects and enhance the capacity to cope with disruptions.
Step up efforts to improve energy efficiency.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 2.8.1997, p. 1.

[2]               OJ L 306, 23.11.2011, p. 25.

[3]               COM(2013)352 final.

[4]               P7_TA(2013)0052 and P7_TA(2013)0053.

[5]               Council Decision 2013/208/EU of 22 April 2013.

[6]               COM(2012) 750 final.

[7]               COM(2012) 751 final.

[8]               SWD(2013) 114 final.

[9]               Under Article 9(2) of Council Regulation (EC) No
1466/97.